THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

WOLF BLITZER, CNN ANCHOR: Happening now: Susan Rice goes to Capitol Hill, but doesn't quiet Republicans' concerns she and the Obama administration misled the American public about the deadly attack on Americans in Libya.

The election was only three weeks ago, but President Obama's about to shift back into campaign mode.

And we're learning exclusive new details about the personal and professional life of the woman at the center of the scandal that forced the resignation of CIA Director David Petraeus.

I'm Wolf Blitzer. You're in THE SITUATION ROOM.

We begin with the Obama administration's latest attempt to explain the misleading information given out in the days after the September 11 attack on the U.S. Consulate in Benghazi, Libya. Four Americans, including the U.S. ambassador to Libya, died in what we now know was a terrorist attack.

But that isn't what the U.S. ambassador to the United Nations Susan Rice said when she went on national television five days after the attack. Today, Rice is up on Capitol Hill. She's explaining what happened and some big-name Republicans clearly are not very happy with her answers.

Our senior congressional correspondent, Dana Bash, is following what's become a pretty long day, a tiring day for the U.S. ambassador to the U.N.

What's the latest, Dana?

DANA BASH, CNN SENIOR CONGRESSIONAL CORRESPONDENT: Wolf, the three Republican senators who had vowed to block Susan Rice from being secretary of state if the president nominates her had really softened their rhetoric in recent days. I'm told the reason for that was because it was a courtesy in order for them to wait until they had a face-to-face meeting with her which they had today.

SEN. JOHN MCCAIN (R), ARIZONA: We are significantly troubled by many of the answers that we got and some that we didn't get.

SEN. LINDSEY GRAHAM (R), SOUTH CAROLINA: I'm more disturbed now than I was before.

BASH: Rice requested to meet with her chief Republican critics in order to explain why five days after the September Benghazi attack that killed four Americans she went on Sunday talk shows suggesting it was sparked by a spontaneous protest.

SEN. KELLY AYOTTE (R), NEW HAMPSHIRE: The information given to the American people was wrong. In fact, Ambassador Rice said today absolutely it was wrong.

BASH: Accompanied by Acting CIA Director Michael Morell, Rice explained she was using these unclassified talking points which were stripped of references to al Qaeda, still classified by the intelligence community. So Rice used the word extremist.

SUSAN RICE, UNITED STATES AMBASSADOR TO THE UNITED NATIONS: Extremist elements came to the consulate as this was unfolding.

BASH: A source inside the meeting tells CNN Rice admitted to GOP senators she was aware of classified information suggesting al Qaeda was behind the attack. And yet GOP senators point out she still said this publicly.

RICE: We have decimated al Qaeda.

BASH: CNN is also told Rice tried to clarify to GOP senators that what she meant was al Qaeda's core leadership had been decimated. But GOP senators argue it's proof Rice was putting pre-election spin before national security.

GRAHAM: It was unjustified to give the scenario as presented by Ambassador Rice and President Obama three weeks before an election.

BASH: Rice did not answer our question. She did release a statement admitting her talking points -- quote -- "were incorrect in a key respect. There was no protest or demonstration in Benghazi. While we certainly wish we had had perfect information just days after the terrorist attack, as is often the case, the intelligence assessment has evolved. We stress that neither I nor anyone else in the administration intended to mislead the American people at any stage in this process."

And the White House had this to say.

JAY CARNEY, WHITE HOUSE PRESS SECRETARY: The focus on, some might say obsession on comments made on Sunday shows seems to me and to many to be misplaced. BASH: GOP senators also complained Rice neglected to ask key questions before telling the public what turned out to be wrong information.

AYOTTE: That's troubling to me as well why she wouldn't have asked. I'm the person that doesn't know anything about this. I'm going on every single show.

(END VIDEOTAPE)

BASH: Now, Rice's Democratic supporters argue the Republican senators are the ones who are politicizing the Benghazi attack by continuing to go after Susan Rice. In fact, the Homeland Security chairman, Joe Lieberman, also met with Susan Rice this afternoon, Wolf. And he came out and told reporters he's satisfied with her answers. He sees nothing to disqualify her as secretary of state if the president decides to nominate for her.

Unfortunately, for Susan Rice, as you know, Joe Lieberman won't get a vote because he is retiring at the end of the year.

BLITZER: He won't be in the next Senate, and the lame-duck Senate is not going to that if -- and it's still a big if -- if the president goes ahead with this nomination.

Do we have a clear answer yet why the White House decided to put Ambassador Rice out on that specific Sunday five days after that September 11 attack on the consulate in Benghazi? Why did they decide to select her to make the administration's case?

BASH: Do we have a clear answer? No. But we have some suggestions from Democratic sources I have been talking to. And the biggest I'm told actually came up in this meeting today with Republican senators, which is, why wasn't Hillary Clinton who, of course, is secretary of state now, why wasn't she out there? The answer was that she wasn't feeling well. She was very upset about the fact that one of her ambassadors was killed in the line of duty. And that's the main reason why she didn't go out and that Susan Rice was kind of the most logical choice to do that.

The other argument that I'm told by Democratic sources is that she wasn't just talking about Benghazi, but she was also talking about the protests that really were happening across the Middle East because of that video in Cairo and elsewhere.

BLITZER: Usually, they do put the U.S. ambassador to the U.N. out before the big United Nations General Assembly meetings, which were about to begin.

BASH: Exactly. Great point.

BLITZER: And so that's probably one of the reasons they selected her as well. That's at least what I have been told by insiders. Dana, thanks very much.

We're now only 35 days away from the so-called fiscal cliff, deep cuts in federal spending coupled with sharp tax increases. By law, they take effect automatically and many experts fear will throw the U.S. economy back into a recession. Both Congress and the White House are trying to make a deficit reduction deal to avoid the financial chaos.

And President Obama's reverting to some campaign mode right now to try to make sure things are done his way.

Our White House correspondent, Dan Lothian, is joining us now with new information.

What are you learning, Dan?

DAN LOTHIAN, CNN WHITE HOUSE CORRESPONDENT: Well, Wolf, while senior members of the administration, including Secretary Geithner, Chief of Staff Jack Lew, also top adviser Valerie Jarrett, are meeting with members to fix the debt, the president himself is trying to sell his vision to the public, but some top Republicans say it's not a winning strategy.

(BEGIN VIDEOTAPE)

LOTHIAN (voice-over): It doesn't take a GPS to find the way to the fiscal cliff. Much more difficult, finding the off-ramp. At the president's first meeting with congressional leaders more than a week ago, there was a sense of optimism.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: My hope is, is that this is going to be the beginning of a fruitful process.

LOTHIAN: There was a follow-up phone call with House Speaker John Boehner, but a much different approach this week. The president's calendar is packed with sales pitches to the public, which he hopes will strengthen his hand in negotiations with Republicans.

On Monday, a White House report on the impact of middle-class tax cuts on the economy. Tuesday, a meeting with small business owners. Wednesday, meetings with middle class Americans and CEOs from some of the country's biggest companies. And, Friday, a road trip to a Pennsylvania manufacturing plant.

This approach did not escape the attention of Senate Minority Leader Mitch McConnell, who questioned the president's leadership on these fiscal challenges.

SEN. MITCH MCCONNELL (R-KY), MINORITY LEADER: In other words, rather than sitting down with lawmakers of both parties and working out an agreement, he's back on the campaign trail presumably with the same old talking points that we're all quite familiar with.

LOTHIAN: But White House spokesman Jay Carney insisted the president is fully engaged in getting an agreement while taking his case to the public.

CARNEY: So to suggest that we should now that the election's over stop talking to them about these vital issues I think is bad advice. LOTHIAN: But that didn't stop a barrage of questions about when the president would next meet with congressional leaders or why he was spending much more time with stakeholders than lawmakers. Carney hit back.

CARNEY: It does not, I think, you know, make a lot of sense to simply say, never mind, the American people and business leaders and small business leaders and civic leaders and labor, you know, cut them out of the process and stop the conversation with them. The president thinks that's a big mistake.

(END VIDEOTAPE)

LOTHIAN: So, again, tomorrow here again at the White House the president will meet with middle class Americans. These are people the White House said who answered an e-mail, talked about how if those middle class tax cuts are not extended how it would impact them. White House spokesman Jay Carney saying that it is not a comprehensive solution, but "a significant step toward a solution in order to avoid the fiscal cliff" -- Wolf.

BLITZER: That campaign mode worked for the president in getting himself reelected. Maybe it will work for him right now in this crisis. Dan, thanks very much.

Gloria, for some reason, this sounds very familiar, the summer of 2011, the debt ceiling debate that was going on.

GLORIA BORGER, CNN SENIOR POLITICAL ANALYST: Yes.

BLITZER: But the White House has a little different strategy this time.

BORGER: Well, first of all, the White House I think is in a very different political position than it was in the summer of 2011.

That was when the Tea Party was on the ascendancy, the Republicans were emboldened in the House of Representatives. And so the president found himself in that deal if you will recall negotiating with himself and some Democrats thought that was just a little bit too early.

Now, the president has been reelected. While I would argue, nobody has a mandate other than to fix things on this fiscal cliff, the president feels that he has a mandate particularly from the base of the Democratic Party. Those were a lot of the people he's been meeting with, including the CEOs, taking the show on the road, taking a page I would argue from Ronald Reagan's book, going over the heads of the Congress to the American people, which by the way Republicans will do as well.

And this is all part of the theatrics that goes along with finally settling down and getting to the serious negotiations.

BLITZER: Probably a good strategy.

Look at this. Our new poll this week, the CNN/ORC poll, asked how to resolve this budget problem.

BORGER: Right.

BLITZER: Only spending cuts, 29 percent, but a mix of spending cuts and tax increases, 67 percent. That's an overwhelming majority. So how do the Republicans need to finesse their message given where the American public stands?

BORGER: I think we see that playing out in public right now. What we have is a Republican Party that's kind of searching for this new message. And what they have to demonstrate is, yes, they're the party of fiscal conservatism, but they also have to show, Wolf, that they can be a little bit flexible when it comes to the details, because they do want to solve the deficit crisis, which is why you see a lot of these people coming out talking about a balanced approach, which after all is what the president is talking about.

Some of them renouncing Grover Norquist's no tax increase pledge. It is a party that is struggling right now to find its way, but also trying to consolidate and say we're still the fiscally conservative Republican Party that we always were and we don't like raising taxes.

BLITZER: How much of what we're seeing from leaders on both sides is simply theatrics?

BORGER: A lot of it. Right now, what we're seeing, OK, the president is taking his show on the road. The Republicans will take their show on the road. The president's meeting with CEOs, the Republicans will meet with CEOs. The president is meeting with small business, and the Republicans will meet with small business.

But take a look at this editorial, something from the editorial that the conservative editorial page of "The Wall Street Journal" wrote today. And it says this: "Republican voters know that elections have consequences and that Mitt Romney's defeat means there will be policy defeats too, but they will give the House and Senate GOP credit if it fights for its principles and drives a hard bargain."

So, standing up for your principles is what this is about, letting your team know you're still leading the team. This is about positioning yourself to get the best deal you can get for your constituents. But today, for example, Dick Durbin, the number two leader of the Democrats in the Senate, came out and gave a policy speech. He has a lot of credibility on deficit reduction.

And while he said Medicare and Medicaid, changes in those programs should not be part of the first step, the Democrats have to look at that down the road in order to be constructive on deficit reduction. This is a senator, liberal Democrat, part of the gang of six, somebody with a lot of credibility on deficit issues. I think that opens the door a little bit. You're seeing it on the Democratic side. You're seeing it a little bit on the Republican side.

BLITZER: Both sides are going to have to open the door more than just a little bit. But they're going to have to make a deal.

BORGER: Because you know what? The message, the one mandate from the public was fix things.

BLITZER: Fix it.

BORGER: Fix it.

BLITZER: And do it quick. Gloria, thank you.

CNN's getting exclusive new information and photographs of Paula Broadwell. She's the woman whose affair with General David Petraeus forced him to leave the CIA. Now her friends are coming to her defense. Stand by.

BLITZER: CNN is learning exclusive new details about the woman at the center of the scandal that cost the CIA Director David Petraeus his job. Friends of Paula Broadwell are coming forward to paint a more sympathetic picture of her both as a professional and as a human being.

SUZANNE KELLY, CNN INTELLIGENCE CORRESPONDENT: Wolf, we're seeing these images first in THE SITUATION ROOM. They're from Broadwell's private collection. It's an effort being rolled by her friends, family and the P.R. firm she's hired to help her managed all this. We're told it's an effort to put out what they call a more realistic picture of who she is after two weeks of being cast as something of an obsessed mistress.

Broadwell has been laying low since news of her affair with former CIA Director David Petraeus. Her brother, a Washington-based attorney, is among those who have been the most vocal in their support, not of her behavior but her as a person. Another friend, Michael O'Hanlon, with the Brookings Institution, put out an op-ed over the weekend in "The Baltimore Sun", also not defending her behavior but letting people know that some of the betrayals of her just don't match up with the woman who he calls a friend.

Broadwell's brother also told us earlier today that it's been hard for her family to see the picture that's being painted of her and that her real focus is her family, her husband and her boys and trying to restore the trust that she had with her husband and trying to protect her children from the publicity."

Now, we haven't heard much from her publicly, Wolf. But those close to her have described her as being absolutely ashamed, embarrassed and trying to recover from all of this.

BLITZER: She hasn't spoken publicly about all of this. Why the public push now by her friends?

KELLY: Right. Well, I think that her friends say, you know, she's still very much concerned about the ongoing FBI investigation into what classified materials she had, how she treated them and where they came from. That investigation is ongoing. And a source close to her says the FBI hasn't given her any indication as to how long it might continue. But as long as there's a possibility of legal action, she's being careful.

Now, that said, her brother also says that her mind is very much focused on fixing the damage within her family. And that will come before trying to fix any damage to either her career or her reputation.

BLITZER: The pictures we're now getting, the pictures you're showing our viewers, they're different than the ones we saw before.

KELLY: They are very different. This gives you a great indication of what people are trying to do with the portrayal of her. They want to put out the message that she wasn't just a mistress. She was also a professional, a mother.

As O'Hanlon put it earlier today, Petraeus will likely be able to bounce back from this because people who knew who he was before the affair broke, it will likely be far tougher for Broadwell because most people are just getting to know her because of this affair.

And, of course, we have a full story on this, Wolf, along with all of these photos on CNN.com/securityclearance, which I know you love to read.

BLITZER: But a lot of reports, she's getting professional advice in terms of damage control and how to deal with this.

KELLY: Yes. She has an attorney that she's hired here in D.C., as well as a P.R. firm. And both of them are trying to work together to give her some time to get through this. It's been difficult for her they say before putting her out in any public capacity. But, again, there's that legal issue hanging over her head. That's a big concern for them as well.

While the scandal undoubtedly hurt David Petraeus' reputation, CNN's latest polling finds a lot of people still like him, 44 percent of U.S. adults still have a favorable opinion of him, 28 percent say their opinion is unfavorable and another 28 percent are unsure.

Our poll also finds an even split 48 percent to 48 percent on whether General Petraeus should have resigned as the CIA director.

In Egypt today, one man is dead after violent clashes with police. Protesters are camping out in Cairo's Tahrir Square, in a scene strikingly similar to what we saw in the revolution almost two years ago. The demonstrators are voicing their anger with President Mohamed Morsi after what some are calling an unprecedented power grab.

CNN's Reza Sayah is joining us from Cairo once again.

Reza, we're hearing about attacks against several Muslim Brotherhood offices in Egypt. What do you know about that?

REZA SAYAH, CNN INTERNATIONAL CORRESPONDENT: Well, according to the Brotherhood's spokesperson, two of their offices in the cities of Mansoura and Mahalla were attacked by anti-Morsi protesters. The Brotherhood says these protesters were carrying Molotov cocktails, clubs and knives and destroyed and heavily damaged these offices.

Remember, Muslim Brotherhood had called for a one-million-man demonstration of their own today to rival the opposition's demonstrations. Late last night, they called it off to avoid violence. But in these two particular cities north of Cairo, they didn't avoid violence.

BLITZER: Reza, we're also seeing and I want to show our viewers some live pictures from Tahrir Square in Cairo not far from where you are right now. You were there earlier in the day. Who are these protesters? And there are huge numbers there. We see the tents. What's going on?

SAYAH: Yes. These are the opposition factions. Now, what's interesting is right after the 2011 uprising, these factions were all divided. Now, they've all banded together. These are all Muslims like much of Egypt, but you're not going to find many hard line Islamists here.

These are the people who represent the secularist, the moderates, the Western style liberals, the women's rights groups, and they've banded here together to rise up in opposition against Mr. Morsi. Many of them want Mr. Morsi to step aside. Others want him to reverse his decree. But the reason we have a standoff is that Mr. Morsi, the president, has given no indication that he's going to back down from these decrees, Wolf.

Reza Sayah in Cairo watching this story -- very tense situation over there at Tahrir Square right now.

Elsewhere in the Middle East today, they exhumed the body of the Palestinian leader Yasser Arafat. They're trying to clear up a mystery. Did somebody try to kill him with poison?

(COMMERCIAL BREAK)

BLITZER: The latest on what really killed Yasser Arafat. Lisa Sylvester is monitoring that and some of the other top stories in THE SITUATION ROOM right now.

What is the latest, Lisa? LISA SYLVESTER, CNN CORRESPONDENT: Wolf, the former PLO leader's body was exhumed today and reburied a short time later. International investigators led by the French took samples from Arafat's body to test for poison. They're looking for a toxic radioactive element called polonium.

The Palestinian Authority believes Israel is behind any poisoning of Arafat. The spokesman for Israeli Prime Minister Benjamin Netanyahu tells our own Wolf Blitzer that Israel had nothing to do with Arafat's death. Arafat died in 2004 after having a brain hemorrhage and slipping into a coma.

And the Justice Department and House Republicans have started talks on the Fast and Furious lawsuit. Republicans want to force Attorney General Eric Holder to turn over certain documents tied to the gun trafficking operation. The Obama administration has withheld these documents under executive privilege. Holder tells CNN, quote, "I think there's a deal that can be struck."

And we will bring you more on this very important story in the next hour of THE SITUATION ROOM.

And the U.S. Navy wants to replace the aging fleet of Marine One helicopters. "Reuters" reports the Navy plans to buy 25 new helicopters used to transport the president. That's according to a draft request for the proposal. The first of the new helicopters would be ready in 2020. You might recall in 2009 the Navy failed at its attempt to buy new Marine One helicopters when a program run by Lockheed Martin went way over budget.

And this year's Cyber Monday being called the biggest online shopping day ever. According to IBM's Smarter Commerce, online sales were up 30 percent over last year. It's estimated Cyber Monday sales topped $1.5 billion. Also, a growing number of shoppers there used mobile devices like smartphones or tablets to make their purchases.

I think it's just becoming easier. And that's the way --

BLITZER: Did you buy anything on Cyber Monday?

SYLVESTER: I bought a couple of things. But I also bought some things on Black Friday too. So, I think I'm still --

BLITZER: You did the old fashioned way and new way.

SYLVESTER: Exactly. But you got to admit, it's really easy with a few clicks of a button here and there and presto.

BLITZER: A lot of times now, there's free shipping, too.

SYLVESTER: Well, especially on Cyber Monday. That was the real thing.

BLITZER: Yes.

SYLVESTER: If you looked around, you had your favorite stores. You could certainly find some deals.

BLITZER: So, those retail stores going to wind up like newspapers, do you think?

SYLVESTER: I think people still like going into the store and trying it on, particularly when it comes to things like clothes and shoes.

BLITZER: It's not like you have to look for a parking spot, wait in line, spend hours over there. It takes up a lot of time.

SYLVESTER: But you know what, Wolf? A lot of people actually like that. They like the Black Friday experience of actually going to the mall and seeing all the Christmas decorations. They kept on the spirits. But go ahead.

BLITZER: Good. Happy they do it. It's good for the economy.

SYLVESTER: That's right.

BLITZER: Lisa, thank you.

Mexico's getting ready to swear in a new president. Enrique Pena Nieto, he's here in Washington. I had a chance to sit down with him and ask him about the war on drugs, immigration and a whole lot more. My exclusive interview with the brand new Mexican president, that's coming up.

BLITZER: All right, let's get right to our "Strategy Session." Joining us right now, Democratic strategist James Carville and Republican strategist Mary Matalin. They're both CNN contributors. Guys, thanks very much for coming in.

As you know the U.S. ambassador to the U.N., Susan Rice, she met with three of her toughest critics, Republican critics up on Capitol Hill today. Listen to what Senators McCain, Graham and Ayotte said after the meeting.

(BEGIN VIDEO CLIP)

SENATOR JOHN MCCAIN (R), ARIZONA: We are significantly troubled by many of the answers that we got and some that we didn't get.

SENATOR KELLY AYOTTE (R), NEW HAMPSHIRE: I want to say that I'm more troubled today knowing having met with the acting director of the CIA and Ambassador Rice.

(END VIDEO CLIP) BLITZER: More disturbed now. More troubled now. Mary, are they giving the U.S. ambassador a fair shot? Because there's all the indications we're getting the president maybe wants to name her the next secretary of state.

MARY MATALIN, CNN CONTRIBUTOR: Well, whether she was misleading purposefully or unwittingly, we come to the same end. There's never been an incompetence of that magnitude at that level. There was open source intelligence.

I don't know anybody, neither do you, Wolf, in all the administrations I've worked in or you've covered where you get talking points handed to you and you don't ask questions. Even the presidential daily brief, the PDB, is intended to be asked about.

Not to be read, to be read deeply into and asked questions. I can't imagine any U.N. ambassador, any secretary of state just taking prima facie, that kind of information that was belied in realtime by Libyans on the ground, by our own people on the ground, by a realtime drone aerial picture of it would go out a week later and say that. If she's not misleading, then she's incompetent.

BLITZER: What about that, James?

JAMES CARVILLE, CNN CONTRIBUTOR: Well, we got that report by ambassador -- going to come out in January. If the president does appoint her, which frankly now I hope he does, she'll be asked openly and she will testify and the public will see the whole thing.

They've already launched an investigation director of central intelligence to testify, the director of overall intelligence to testify. So they'll have a chance to question Ambassador Rice presumably going to be secretary of state nominee Rice and she can give her answers.

That's the way the system should work and they'll have the benefit of the report audited by the administration. I'm sure the secretary of state will be testifying at some point in this too or be heard from. So we'll see where it goes.

I'll agree with Tom Ricks who was on our competitor network, Fox News, said he thought the whole thing was overblown. Obviously, they're going to find some mistakes were made. In anything they do I think the public has a good grip on this. We'll see if secretary of state does she testifies and they have a chance to question her.

BLITZER: Mary, do you think there's anything she can do to win over the skeptical Republicans?

MATALIN: I honestly do not believe this is about Susan Rice. I believe she's a smart person. She's a rogue scholar and understands all of that. But there's either a horrific intelligence breakdown, something broke down where this administration through the MBI chairman says he took out the real facts about what was going on, on the ground. There's something wrong when this administration allows their U.N. ambassador whose read-in at that level to go out and mislead the American people on a terrorist attack. It's not about Susan Rice. She's a distraction here.

But what Senators McCain, Ayotte and Graham are talking about is we live in a dangerous world. And we have to have a better answer than talking points given to her like she's some kind of flak.

BLITZER: These polls that we have, James, these latest CNN/ORC polls, how has the Obama administration handled the Benghazi attack, 40 percent say they're satisfied, 54 percent dissatisfied. Did the Obama administration try to intentionally mislead the public on the Benghazi attack, 40 percent say yes, 54 percent say no. The administration's got some work to do, James.

CARVILLE: They have made some mistakes here. Again, we have the report coming out that they audit by ambassador pickering who is probably one of the most respected people in the last 30 years in the State Department. They've testified we're going to know in January what happened.

Are we going to find out somebody made some mistakes? I'd be shocked if we didn't. I mean, again, this whole thing is probably some mistakes made here I think the entire thing is -- I think the public has a pretty good grip on it.

That they've made some mistakes and they weren't intentionally misleading people, but we're going to have real answers. And by the way, if Secretary Rice -- I mean, Ambassador Rice is appointed to be secretary of state, they can get more answers.

They have subpoena power in the House. They can do all of these things and there's been no evidence of any cover-up or anything. So we'll get all the facts and the public will be able to discern what it is.

Go back to what Tom Ricks says that he thinks this whole thing is overblown. Of course, people have made mistakes. We'll find out what they are and assess and go on from there.

BLITZER: We'll see if the president goes ahead and nominates her to succeed Hillary Clinton as the secretary of state. And then we'll watch the fight up on Capitol Hill. Guys, thanks very much.

Hundreds of thousands of homes were torn apart by Superstorm Sandy. As people start to rebuild, are insurance companies trying to help or are they just trying to help themselves?

(COMMERCIAL BREAK)

BLITZER: The price tag for Superstorm Sandy is growing. Officials in New York State and New Jersey say they'll need more than $70 billion to recover. In some ways the property devastation was worse than Hurricanes Katrina and Rita combined in some ways. In New York State alone Sandy destroyed more than 300,000 homes. That's a lot of homes that have to be rebuilt. And as CNN's national correspondent Deborah Feyerick discovered, it means a lot of homeowners are looking for answers.

AMY BACH, INSURANCE CONSUMER ADVOCATE: The worst is just saying we're not going to pay for this when in fact it's covered or lowballing saying we're only going to give you 50 cents on the dollar.

FEYERICK (on camera): What we're hearing is, is that a number of these insurance companies are finding ways to say no before they're finding ways to say yes. ROBERT HARTWIG, PRESIDENT, INSURANCE INFORMATION INSTITUTE: I would disagree. There are a small number of disputes that do occur and when you have as many as a million claims, yes, they do.

FEYERICK (voice-over): Robert Hartwig speaks for the insurance industry. He cannot talk about the denied claims instead saying payment of Sandy-related claims is going very well.

HARTWIG: People are paid the amount of money that they are entitled to under the terms and conditions of the policy, yes.

FEYERICK: And that may be a big part of the problem. Many people don't understand the terms and conditions of their policies until after they need them.

(on camera): What does this mean? We may not limit our liability to pay damages for which we've become legally liable to pay?

SULLIVAN: I don't know.

FEYERICK: Some people will say, look, it's your responsibility to understand this?

SULLIVAN: But what does that mean?

FEYERICK (voice-over): Arguably, some insurance companies may count on exactly that. The state's chief insurance regulator, Benjamin Lawsky, is tracking insurance companies who fail to do the right thing.

BENJAMIN LAWSKY, SUPERINTENDENT OF FINANCIAL SERVICES: If it ends up that there is a pattern where particular companies are not paying what they promise to pay, they are going to have a huge problem doing business in this state.

(END VIDEOTAPE)

FEYERICK: So what happened? Well, Peggy Taylor got help from the New York State Department of Financial Services, which called Taylor's insurance company on her behalf. An adjuster came, assessed the damage and instead of getting zero, the adjuster cut a check for $7,500, a partial payout for hurricane and wind damage not flood.

As for Tom Sullivan, we called his insurance company. They reviewed his claim and again promised him a check for $10,000. They then contacted us here at CNN to find out whether Sullivan's story would be included now that the matter was resolved -- Wolf.

BLITZER: Deborah Feyerick, thanks very much. Diagnosed with cancer and taking medical marijuana. Is it a safe treatment for a 7-year-old girl? Standby. Our Dr. Sanjay Gupta has a report.

(COMMERCIAL BREAK)

BLITZER: The movement to legalize medical marijuana is gaining support, but what if the patient is a child? In July, a 7-year-old was diagnosed with leukemia. A few days later, she joined Oregon's medical marijuana program.

DR. SANJAY GUPTA, CNN CHIEF MEDICAL CORRESPONDENT: Well, Wolf, the question of safety is the first one that comes up every time you talk about this. And as you might imagine, it is difficult sometimes to get some of those study results back.

In the United States for example, it's an illegal drug that we're talking about. So it's hard to do the studies and especially hard to do them in children. So a lot of the data that we talk about actually comes from other countries.

So for example, there was a study out of the Netherlands looking specifically at adolescence who smoked marijuana or who took marijuana and comparing them to people who are adults. And they did find if you smoked or took marijuana before a certain age, it was more likely to have a long-term impact.

So for example these children who started during an average age of 8, but teenagers as well, by the time they were 38 they had a loss of about eight IQ points compared to the general population. That's a lot, not much depending on your perspective.

But with adults, they did not find the same long-term impacts in the studies. With regard to this 7-year-old, she has this treatable form of leukemia. About a 79 percent or 80 percent chance of putting this in remission.

She's taking this medical marijuana to try to alleviate some of the symptoms, for example, the nausea that's associated with chemotherapy and also the pain. Marijuana can be especially effective for treating what is known as neuropathic pain, the pins and needles sort of feeling.

The question that doctors want to know is if it's safe, effective and more effective than what else is out there? Sure enough. Are there other medications for nausea, Zofran, for example?

You could even take THC, which is the active ingredient in marijuana in a pill form known as "Marinol." That's something that's FDA approved. But again, this is going to be a decision between patient and their doctors.

Macayla, by the way, isn't the only one. In the state of Oregon alone, of the 2,200 people who are on the marijuana registry, 52 of them are children. It's now legalized for medicinal purposes in 18 states and two more states for recreational purposes.

So this is an issue that's going to come up again and again. Wolf, hopefully we'll get a chance to continue to talk about it.

BLITZER: I'm sure we will. Sanjay, thanks very much. Let's hope the little 7-year-old is going to be OK. Thank you. A deadly day of eight car bombings in Iraq. Lisa Sylvester's back. She's looking at this story. Eight car bombing on one day in Iraq. What is going on?

LISA SYLVESTER, CNN CORRESPONDENT: Yes, that is something else, Wolf. At least 29 people were killed and 126 wounded in a string of car bombings around Iraq today. Bombers attacked in Baghdad. No claim of responsibility for the three Baghdad attacks yet, but police are pointing the finger at al Qaeda in Iraq. The deadly attacks come a day after officials agree to talk about disputed areas including in (inaudible).

And the ACLU is suing the Pentagon to lift all restrictions on women serving in combat. The civil liberties group says the policy is unconstitutional. The suit is filed on behalf of four women who served in Iraq or Afghanistan.

The Defense Department recently allowed women to serve in some combat units and it says the defense secretary is strongly committed to examining the expansion of roles for women in the U.S. military.

And check at this amazing video from Hawaii. Lava from a volcano in the big island of Hawaii is reaching the ocean. The volcano has been continuously erupting for almost 30 years. It's the first time the lava has flown into the ocean in almost a year.

Experts say it's very dangerous and they are warning people to stay away. Boy, does it make for a beautiful sight, beautiful pictures. And I've actually -- well, you know I went to high school on the big island. I've seen that pictures time and time again. I've actually been relatively close. You really can't get too close, but it is really a sight to see -- Wolf.

BLITZER: Thanks very much, Lisa.

Mexico's new leader is here in Washington to meet with President Obama, but first he sat down with me for an exclusive interview today. You're going to hear his strong words over the so-called "Fast and Furious" gun smuggling operation.

And the Powerball jackpot reaches half a billion dollars.

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BLITZER: The jackpot for tomorrow's Powerball drawing, get this, is now a record $500 million, but it may come with a catch. Lisa's back. She's got more -- Lisa.

SYLVESTER: Hi there, Wolf. So who doesn't want to win the lottery, right? In fact, I bought my lottery ticket already. But you know, Wolf, believe it or not there are some former lottery winners who say they wish they had never won. Winning the lottery will change your life often for the good, but sometimes for the bad.

(BEGIN VIDEOTAPE)

SYLVESTER (voice-over): This is the stuff of dreams.

UNIDENTIFIED MALE: I'd probably buy my wife a new car.

UNIDENTIFIED MALE: I'd be able to pay off my student loan.

UNIDENTIFIED FEMALE: Retire most definitely.

SYLVESTER: A $500 million before taxes, that's how much you can win in the Powerball jackpot. If you win, you can buy a lot of stuff, but what about happiness?

Well, it turns out those cliches money can't buy you happiness, money doesn't make the man, a fool and his money are easily parted, there's some truth to them. Only about half of all lottery winners are happier three years later says Michael Boone whose Seattle firm advises big lotto winners.

MICHAEL BOONE, PRESIDENT, MWBOONE AND ASSOCIATES: I think Henry Ford said it really, really well. He said that money doesn't change a person, it simply unmasks them. I think that really is what happens. So people have an opportunity to do all the things they dreamed of and sometimes those are good things and sometimes they're not.

SYLVESTER: Christmas 2002, Jack Whitaker of West Virginia had the only winning ticket in the $340 million lottery jackpot. Two years later, his wife said that she wishes she had torn up the ticket, their lives in shambles. Their 17-year-old granddaughter was dead after struggling with a drug addiction.

Whitaker faced multiple lawsuits and was arrested twice for drunken driving. Abraham Shakespeare in Florida was murdered after winning $31 million. Then there's Amanda Clayton, a young mother who won $1 million in the Michigan lottery.

She made headlines when she continued to collect food stamps. She was found dead of an apparent drug overdose. Are these winners just unlucky or is there something more?

Psychologist, Alduan Tartt, says big payouts can isolate people. Thrust them into a world of wealth that is foreign to them. Long lost family members may hound them. There's a guilt factor, who to help out and who not to. And there's a funny thing about money and happiness you may not realize.

ALDUAN TARTT, PSYCHOLOGIST: You win the lottery and so you spend a lot of money. And what happens is you get used to having a lot of money and spending a lot of money. So what happens is you actually have to spend more money to get the same level of happiness.

SYLVESTER: But what about the lottery winners who do end up happy? What's their secret? Experts say they don't lose their sense of self and they can separate their identity from their money.

(END VIDEOTAPE)

SYLVESTER: And Tartt says, you know what makes people really happy is actually the pursuit of happiness, enjoying the journey of setting a goal and reaching it. With the lottery, the money is just handed to you. Also, Tartt says, making someone else happy and having a sense of purpose, also expressing gratitude, that those are the true keys to happiness. Wolf?